U.S. Healthcare: Why is it so expensive and what do we get for our investment?

The U.S. is a global outlier when it comes to healthcare spending. Healthcare costs in the U.S. have been growing unchecked for several decades. From 2021 to 2022 alone, expenditure grew 4.1%, reaching $4.5 trillion and accounting for 17.3% of GDP.{1} In 2022, expenditure per person was $12,555, which was over $4,000 more than any other high-income country.{2} The average amount spent on healthcare per person in comparable countries ($6,651) was about half that spent in the U.S.{2,3} 

And what do we get for this outsized price tag?

Are healthcare outcomes in the U.S. commensurate with our investment? Not only does the U.S. spend more on healthcare than comparable nations in the Organisation for Economic Co-operation and Development (OECD), but Americans experience worse health and are the only citizens not guaranteed universal coverage.{4} The Commonwealth Fund,{5,6} which supports global research to promote better healthcare, recently concluded that, amongst peer countries, the U.S. has:

• The lowest life expectancy at birth for both women and men

• The highest maternal and infant mortality rates

• The highest death rates for avoidable or treatable conditions

• Among the highest suicide rates

• The highest rate of people with multiple chronic medical conditions

• An obesity rate nearly twice the OECD average

• Fewer visits to physicians than people in most other countries

• Among the lowest rate of practicing physicians and hospital beds per 1,000 population

• Healthcare disparities that rank among the most pronounced across high-income nations, including discrepancies between genders as well as those among various racial and ethnic demographics.

Graph from Peterson-KFF Health System Tracker

“It doesn’t take an economist to understand that paying three times as much for worse results is a bad deal.”

-- Arthur Garson, Jr. and Ryan Holeywell --

What then are the drivers of high healthcare costs in the U.S.?

The Commonwealth Fund found that 60% of excess spending was accounted for by administrative costs, prescription drugs, and wages for physicians and nurses.{4} The healthcare industry is massively wasteful, a problem that is not unique to the U.S. It is estimated that about one-third of U.S. healthcare dollars—in excess of $1 trillion annually—is misspent on, amongst other items, administrative waste (there are more billing clerks in the U.S. than hospital beds), fraud and abuse (billing for services that weren’t done or were cheaper than reported), and overtreatment.{7} In addition, 10% of the U.S. healthcare budget is spent on people in the last year of life, often on futile treatments that are not desired by patients.{7} Other challenges unique to our healthcare environment are that U.S. governmental agencies are not permitted to consider cost in deciding what they pay for and aren’t allowed to use their bargaining power to negotiate on behalf of their citizens the way that other countries do.

The cost of U.S. healthcare has continued to escalate despite efforts by politicians on both sides of the aisle, at both the state and federal levels. Efforts in the 1990s taught us that Americans reject tax increases to help others; we can’t spend more to help the uninsured or underinsured. The passage of the Affordable Care Act (ACA) in 2010 and the mele that followed taught us that trying to address coverage and access to medical care will not be successful unless we also address the cost of care. Another key learning is that future attempts at healthcare reform must be bipartisan; having healthcare a signature of one party will inevitably make it a target for the next administration,{7} whether or not they have a reasonable alternative to offer.

The preamble to the W.H.O. Constitution of 1946 is clear: healthcare is a basic human right.{8} What does this mean? It does not mean that all individuals have the right to the same medical care or to the medical care they want; we simply cannot afford it. What it does mean is that all individuals have a right to a minimal standard of medical care, regardless of background or means. This is a fundamental responsibility of society and, as such, of government.

Throwing money at healthcare will not solve the problem.

We cannot continue to increase the size of the pie indefinitely. We need to recognize that healthcare resources are limited. If we spend $1 million to help solve one problem, that’s $1 million less we have available to solve other issues. The industry is not suffering from a lack of money. There is already more than enough money being spent on healthcare in the U.S. Other countries have proven this to be true—they spend less and have better health outcomes.

Spending money to deal with healthcare shortcomings is “like painting the bedrooms without fixing the roof.”

-- Sir Gordon Messenger --

The problem is that too much money is being spent in the wrong places. The challenge—and the solution—is to take the existing healthcare dollar from areas in which it is not being impactful (or is being misspent) and reallocate it to areas that show a clear return on investment. Reallocation, sometimes called rationing, isn’t done to be punitive; quite the contrary, it is an appropriate and responsible way to allocate scarce resources. It is not going to be easy. It must be done thoughtfully and ethically; it will require planning and clear communication; and it will require a culture change in the way patients engage and partner with their providers to co-create their healthcare journey. But it must be done. It is a critical step in moving the health of the nation forward. Doing nothing is not an option.

Note: This blog is part two of a series of six blogs on "US Healthcare: A Bureaucratic Quagmire Needing Disruption". In case you have not read the first blog yet, please read "US Healthcare: A Study in Misaligned Incentives" on CognitiveCare's Official Blog Page. Stay connected to read the upcoming blogs of this series.

Authors: This Blog is Co-authored by Dr. Errol Norwtiz and Venkata N. Peri

References:

1. https://www.cms.gov/data-research/statistics-trends-and-reports/national-health-expenditure-data/historical

2. https://www.statista.com/statistics/236541/per-capita-health-expenditure-by-country/

3. https://www.healthsystemtracker.org/chart-collection/health-spending-u-s-compare-countries/

4. US spends more than twice as much on health as similar countries for worse outcomes, finds report BMJ 2023; 383:2340. doi: https://doi.org/10.1136/bmj.p2340 

5. Gunja MZ, Gumas ED, Williams RD. U.S. Health Care from a Global Perspective, 2022: accelerating spending, worsening outcomes. Commonwealth Fund, 2023. https://doi.org/10.26099/8ejy-yc74

6. https://www.healthsystemtracker.org/chart-collection/u-s-life-expectancy-compare-countries/

7. Garson A, Holeywell R. Exposing the 20 Medical Myths: Why everything you know about health care is wrong and how to make It right. 2022 update. Rowman & Littlefield Publishers, London. 2019.

8. https://www.who.int/about/accountability/governance/constitution/